Need to Know: IFRS 10 - Consolidated Financial ... - BDO Canada

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10 IFRS 10 Consolidated Financial Statements4. Effect of adopting IFRS 10We expect that the results of most assessments as to whether an investee should be consolidated will not be affected by theadoption of IFRS 10 Consolidated Financial Statements. Investees consolidated in accordance with IAS 27(2008) Consolidatedand Separate Financial Statements and SIC-12 Consolidation—Special Purpose Entities that meet all of the following criteria willnormally continue to be consolidated:––An entity holds the majority of the investee’s voting rights––There are no contractual arrangements in place that override the voting rights––The parent holds an interest in the investee for its own benefit (that is, it is not acting as agent for another party).The changes brought by IFRS 10 are more likely to have an effect where ownership structures are complex and/or morethan one investor is exposed to variable returns from the investee. The control assessment could also change because ofnew guidance for potential voting rights, contractual arrangements with other vote holders, and structured entities, whereIFRS 10 differs from previous guidance. There are also topics that are specifically addressed by IFRS 10 for which there was noguidance, or more limited guidance, in IAS 27(2008)/SIC-12. These include:––De-facto control––Principal – Agent relationships––Silos––Franchises.These will be covered later in this publication.As a result, some entities that were consolidated under IAS 27(2008)/SIC-12 will not be consolidated under IFRS 10. Therewill also be cases where an entity that was not consolidated under IAS 27(2008)/SIC-12 will be required to be consolidatedunder the new guidance. It is not yet clear if the effect of IFRS 10 will result in more or less consolidated subsidiaries,although effects analyses carried out to date suggest that slightly more Special Purpose Entiteis (or SPEs, now termed‘structured entities’) will be consolidated.However, all entities will be required to reassess whether an investee is required to be consolidated. For most majority orwholly owned subsidiaries this assessment will be straightforward but for some investments a fuller analysis will be required.The International Accounting Standards Board (IASB) has also deliberately excluded ‘bright lines’ from IFRS 10, meaning thatin a number of areas judgement will be required when assessing whether an entity (and in determining which entity) shouldconsolidate an investee.5. Accounting requirementsThe accounting requirements for consolidated financial statements have been carried forward unchanged from IAS 27(2008)Consolidated and Separate Financial Statements. This means that:––Intragroup transactions are eliminated in full––Uniform accounting policies are applied throughout the consolidated group––The financial statements of the parent and subsidiaries are required to be prepared to the same reporting date.
IFRS 10 Consolidated Financial Statements116. Scope6.1. GeneralIFRS 10 Consolidated Financial Statements requires a parent entity to present consolidated financial statements.A parent is defined as ‘An entity that controls one or more entities’.Consolidated financial statements are defined as ‘the financial statements of a group, in which the assets, liabilities, equity,income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity’.6.2. ExemptionsA parent is not required to prepare consolidated financial statements if it meets all of the following conditions (IFRS 10.4):––It is a wholly owned subsidiary or is a partially owned subsidiary of another entity and all of its owners, including thosenot otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidatedfinancial statements––Its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-thecountermarket, including local and regional markets)––It did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatoryorganisation for the purpose of issuing any class of instruments in a public market––Its ultimate or any intermediate parent produces consolidated financial statements that are available for public use andcomply with IFRSs.If an entity is considering making use of this exemption, care is required when determining whether the first conditionhas been met. It would appear that, provided all owners have been notified that it is proposed that consolidated financialstatements are not prepared and no notice of objection has been received, an entity that complies with the otherrequirements could make use of the exemption. However, IFRS 10 (like IAS 27(2008) Consolidated and Separate FinancialStatements) sets no time limit for objections, meaning that a parent that prepares only separate financial statements couldreceive an objection at the time of approval of its financial statements, or even afterwards. It would therefore appearadvisable to obtain explicit consent, even though this is not a requirement of IFRS 10.In addition, IFRS 10 does not apply to:––Post-employment benefit plans or other long term benefit plans to which IAS 19 Employee Benefits applies; and––Investment entities (see section 8).The exemption for employee benefit plans is restrictive, in that it applies only to those plans that fall within the scope ofIAS 19. This means that, for example, employee share trusts and similar entities do fall within the scope of entities to beconsidered for consolidation in accordance with IFRS 10, as they fall within the scope of IFRS 2 Share-based Payment.
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Need to Know: IFRS 10 - Consolidated Financial ... - BDO Canada

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